In 2009 / 2010 there were a couple (or more) longish threads discussing Jim's excellent book 'Unveiling the Retirement Myth'

Recently Jim has written a paper discussing stress testing some of the concepts advanced in 'Unveiling.' I thought this article might be of interest here:

'Stress Testing Your Retirement Plan' (Nov 2012):

"The single most important question of a client close to or in retirement is, “Do we have enough money to retire?” To measure the financial capacity of a client, I categorize him into one of the three zones: Red, green and grey."

Thanks for the link. I had read about Jim Otar somewhere else and was curious but didn't want to spend the time and money on his book. I enjoyed reading his short article.

The big thing that I got out of it is that even though I am in his green zone, if enough things go wrong, I eventually end up with not enough money. I felt a moment of concern, then realized that if nothing at all goes wrong, I eventually end up dead. So I am going to have a great day.

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| The most important thing you should know about me is that I am not an expert.

umfundi wrote:Otar really gets it. If you are on the cusp of retiring, the books by Michael Zwecher (Retirement Portfolios) and Jim Otar are essential.

Virtually no one else has a rational handle on the difference between saving/investing for retirement and spending/investing in retirement.

And, we are now in the realm of financial planning, not investment advice. Most of what you read here (in this forum) is about the latter.

Keith

Thanks for the recommendation, I read Otar a while back but am going through Zwecher's book now. He's not as much of an engineering geek as Otar, just a financial planner writing for other financial professionals, not individual investors. Zwecher also devotes most of his focus to 'floor' investing, making sure all your basic lifestyle needs are covered by safe products, mostly Treasury products like strips, zero coupon, and Treasury bonds. He doesn't recommend TIPS because of their premium and difficulty of ladder construction, instead planning for an inflation-increased maturity for each year of retirement. Instead of living off stock and bond funds in retirement and rebalancing, he converts bond funds to individual bonds that won't fluctuate, with the possibility of adding to the floor with stock gains, but not rebalancing bonds out of the floor. Social security, DB pensions, and annuities can also add to the floor. The benefit of this approach is that by having basic needs assured, retirees can be more aggressive with their stock allocation and not have to withdraw in down markets for basic needs. He recommends deferred annuities for later in life to prevent longevity risk. It has a lot in common with bucket investing, but instead of a cash buffer, you convert all your fixed income into a bond ladder, so you don't have the uncertainty of bucket investing, such as the market crashing right when your income bucket is drying up, and there's not all the uncertainty about when and how much to transfer between buckets. As Otar does, he says that if you don't have enough for a secure floor of basic income, you need to either save more, spend less, or annuitize what you have.

The only place where Zwecher doesn't make sense is on a chapter on risk management, believing that investors need an advisor to sell if their investments go down by a certain amount, and to use individual stock calls and puts and other nonsense to reduce risk. The other problem with establishing a floor is the necessity for significant funds to cover 30-35 years of retirement, and the unattractive long-term rates for any Treasury bonds now. Other than that, though, I think that's a really interesting approach, especially since it allows retirees to have a secure base of basic needs and allow them to be less risk averse with the rest of their portfolio. It's good to see people like Otar, Zweicher, Zvi Bodie, and Wade Pfau focusing on new models for retirement investing beyond the old 4% rule that few actually follow in practice, or the natural inclination of retirees to live off dividends, pretty much impossible now.

"Otar really gets it. If you are on the cusp of retiring, the books by Michael Zwecher (Retirement Portfolios) and Jim Otar are essential.

Virtually no one else has a rational handle on the difference between saving/investing for retirement and spending/investing in retirement."

Amen!

It continues to shock me how so many investors/planners underestimate the radical changes that can occur--both in psychology and financial planning--once the decision is finalized to retire. You are on your own. Few people can do a dry run of retirement.

Speaking as a relatively long-time retiree, I would say the two greatest risks of retirement have little to do with asset allocation. Rather, it's the decision to retire (assuming one does so voluntarily) and the behavioral, as well as financial, adaptation to being a permanent retiree.

On the psychological level, my sense is financial advisers--by and large--come up way short. They think it's all about numbers.

It continues to shock me how so many investors/planners underestimate the radical changes that can occur--both in psychology and financial planning--once the decision is finalized to retire. You are on your own. Few people can do a dry run of retirement.

You make some good points, but another thing to consider is that if you are too careful, you may never retire. You have to balance the possibility of running out of money before you die, with the possibility of working too long and not getting to do the things you want before you die, or before your health makes many things impossible. Imagining that you are sure to live to 90 in good health is just as unrealistic as imagining you have plenty of money when you don't.

I would recommend anyone approaching retirement read "The Denial of Death" by Ernest Becker.

I think the psychological denial of death is as relevant to retirement planning as the psychological blocks to realistic money management.

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| The most important thing you should know about me is that I am not an expert.